Should the business stay in the family?
This is a question that most business founders must face at some point in their lives. Family business planning is the process of selecting and preparing the right person to lead the family firm into the future. The average life of a family-owned business is about 24 years, usually ending when the owner/founder retires or passes away. It is reported that approximately 30 percent of family-owned businesses survive the succession from the first generation to the second and only ten percent to the third generation. By 2019, the number of family-owned businesses that will transfer from the first generation to the second will be the largest the world has ever seen.
Moving from one generation of top management to another generation can be one of the most agonizing processes that a business will experience. Although it is not usually an event, but much more a process, succession planning in a family-owned business can create havoc in the management of the company. The study of factors considered in choosing a successor has yielded many insights. These include: keep or sell the business, the need for participation in the plan from the next generation, managing the succession and avoiding conflict within the family, the stage of the business in the family business life cycle, as well as problems selecting successors from the founder or owner’s point of view. With all the emotions and conflicting agendas, where do you start?
As the owner, consider these questions:
- What value can the next generation add to the success of the business?
- Is it the right thing for the family and the business to continue into the next generation?
- Where would the family members be most happy, successful, and fulfilled in their individual futures – inside the family business or pursuing individual opportunities elsewhere?
- What is the smartest choice to preserve harmony in future generations – keep the family company or selling it?
All too often, the business owner and the next generation cling to the idea of the family business legacy. This thought can cloud thinking and result in an emotional decision that may not be in the best interest of the individual family members. There are many additional questions to be considered in this process. Start by addressing the questions posed above. And don’t wait.
The time to start is now. According to Dr. James Lea in his study of 42 entrepreneurial and family owned businesses, the sooner the better. In his study, he found that 14 of the 42 companies reported they started the succession decision and transition process 10 years or more before making the transfer. Of that number, 86% of the companies were successfully operating 15 years later. In 22 companies they waited, starting their plan 2 to 10 years before making the transfer. Only 50% survived. The remaining eight had a mere 25% success rate!
Consider bringing in an experienced family business consultant who can help you work through the many tough questions that need to be addressed for family business planning. For information on how Revela has helped other family-owned businesses, click here.